Ant Group's failed IPO - Politics or Culture

Culturally or Politically incompatible?

‘China does not have a systemic financial risk problem. Chinese finance basically does not carry risk; rather, the risk comes from lacking a system.

Good innovation is not afraid of regulation, but it is afraid of outdated regulation. We shouldn’t use the way to manage a train station to regulate an airport.’ - Jack Ma at the Shanghai Bund Summit.

It was this speech that landed Ant Group in trouble, and the plug being pulled on the IPO scheduled the next day.

‘Money and politics are like gunpowder and a spark. They should be left as far possible from each other.’

Many interpreted the move as a political manoeuvre from China’s President Xi Jin Ping. Some critics suggested that the inherently flawed business model was to be blamed, endangering China’s existing financial order (I have yet to explore this but would love to be educated if anyone is kind to share).

Though I largely agree with the sentiments, I will be exploring both the political motive behind it and how culturally incompatible Jack Ma’s behaviour was to the East.

The lens we view the world

Culture is more than just surface phenomenon – dress code, mannerisms, behaviours. It transcends beyond that, affecting us more deeply than we think. It shaped the lens we view the world - the way we think about what is fair and not, the value we carry, how we should behave.

Culture is molded by the environment we grew up in, the life experiences we went through, the society we were brought up in. It is influenced starting at age zero to two years old (the brain generates 1.8 million neural connections every second!), more intensely at adolescence, then plateau towards early adulthood.

Our brain is most malleable during adolescence

Study shows that our neural plasticity is most malleable during adolescence. Developing brain has higher degree of plasticity than adult brain. Neural plasticity is the ability of neural networks to change through growth and reorganization. It is also our ability to make adaptive changes related to structure and function of the nervous system. Changes include that as simple as individual neurons making new connections in memorization, to systematic adjustments like cortical remapping.

To give an example, trauma in children is considered a great risk. It affects many areas of the brain, primarily the sympathetic nervous system from overstimulation. This stress induced change alters the brain connection in children and results in hypervigilant or overly aroused behaviour. Fortunately, these changes are reversible thanks to synaptic pruning.

(Analogy for synaptic pruning – A gardener trimming a bonsai tree.

Unwanted part of the plant is taken out to redirect the nutrients, to ensure that the plant grows in a desired shape.

Synaptic pruning is similar. Neurons, the basic working unit of brain, are pruned off to refine connections.)

However, this is not to suggest that an adult brain is ‘fixed’ and turns into an immovable, 1.5 kilograms, rigid blob of mess that just sits on your neck from a certain age onwards. An adult brain is not entirely ‘hard wired’ by fixed neuronal circuits. Neurogenesis, the birth of brain cells specifically neurons produced by neural stem cells, still occur in adults and persist well into old age. This explains why new knowledge and skills can still be acquired even after a traumatic brain injury.

On brain plasticity during adolescence,

‘Even after somewhat chronic stress, the adult brain is able to return to its original state if given time to relax after stress exposure. However, the adolescent brain, which is undergoing continuous intrinsic changes, also permanently incorporate the effects of stress during its pruning and wiring phase.’

This is how neuroscientist Brian Kolb and Robbin Gibb describes it:

‘It is evidenced that brain development and function is influenced by different environmental factors such as sensory stimuli, psychoactive drugs, gonadal hormones, parental-child relationships, peer relationships, early stress, intestinal flora, and diet.

The development of the brain reflects more than the simple unfolding of a genetic blueprint but rather reflects a complex dance of genetic and experiential factors that shape the emerging brain.’

Through this complex neural machinery, it is how culture embeds deeply and is rooted in our model of the world.

The various forms of play

We have evolved different forms of play in communities to instil various values, behaviour to the models of our culture. Play comes in form of games to education to storytelling. We root out undesirable conduct, and reward favourable actions through storytelling in the making of social minds.

Our parents do not merely read morally charged stories to us when we are young, they often add their own narration, underlining the narrative’s message. I remembered vividly when my dad was telling my youngest brother this story during a road trip. It was the same exact story he had told us when we were young - except in this version the main character was yearning for an iPhone instead of a Nokia device.

Study into the background of sociopaths believe that it is a product of childhood trauma and abuse rather than an innate characteristic. An extreme lack of play, or history of abnormal play such as sadism and childhood bullying appear in 90 per cent of them.

In America, consuming ten billion kilograms of beef a year is permissible; whereas in India, cow is considered sacred and any attempt to hurt one is a punishable offence. Such cultural norms fed into our models during childhood construct our world view and who we are as individuals. Culture dictates the moral rules we will fight. Culture defines the kinds of foods that is delicious. It is during these formative years that we get ‘cultured’ as we grow accustomed to the environment, the values instilled in us through the guardians and adults around us.

East and West

Some scholars argued that difference between Eastern and Western culture can be attributed to the physical landscape, the landscape where civilization began for the respective societies.

In ancient Greece, the society was populated around hilly, rocky, coastal landscape and therefore, it was difficult to engage in group activities like farming. To survive, the individual has to be self-reliant, either through fishing, hunting, foraging. This culminated in a cultural ideal – Greeks sought personal glory and perfection and fame. Western civilisation was birthed and influenced as a result.

Conversely, ancient Chinese settlements emerged in flat, fertile landscape. It was more advantageous to engage in large group endeavours like wheat growing or irrigation project. The best way in survival was to ensure that the group was successful, rather than the individual. Confucius described ‘the superior man as one who does not boast of himself, preferring instead the concealment of his virtue, and let the states of equilibrium and harmony exist in perfection’. This is the polar opposite of those culture advocated by the Greeks.

The differences are also portrayed in the stories and tales. Greek myths usually have three acts – Aristotle’s crisis, struggle, resolution. Modern day pictures reflect that too, with heroes battling terrible monsters, conquering them and returning with treasures.

Stories were different in the East. There is rarely any autobiography (autobiography was a recent trend in Eastern culture). If there was any, the individual component is usually taken out, with the success attributed to the group. Eastern tales would focus on the person who sacrificed for the family, community, and country as the hero. In the West, you fight against the almighty evil, struggled some more, and in the end, truth prevails, justice triumphs, and love conquers all.

Who is Jack Ma?

Jack Ma – the co-founder of Alibaba Group, the 2nd wealthiest person in China, an extroverted investor, philanthropist with larger than life stories, most notably on how he was rejected from Harvard for more than ten times, tales of how he applied to KFC and was the only candidate rejected out of 24 applicants. The legend goes on. He co-founded Alibaba Group in 1999, a tech start-up that has now morphed into this giant behemoth, multinational company. It holds a diverse portfolio of companies in numerous business sector around the world. The company pioneered ecommerce and cashless commerce, providing C2C, B2C, B2B sales service via web portals, shopping search engines, cloud computing services in China – the equivalent of Amazon in the Western hemisphere.

The victim involved in the scuffle was not Alibaba Group but the financial arm – Ant Group. With a userbase of more than 1 billion people, Ant Group offers variety of services including Alipay, a smart phone payment service, as well as loans, cash advances and credit assessments. It is also the world’s highest valued FinTech company. The offering was poised to be listed on both Hong Kong and Shanghai stock exchange, setting the scene for the biggest initial public offering the world has ever seen, a $37 billion listing ($315 billion market capitalisation).

Everything was falling into place until the Shanghai Bund Summit where Ma misspoke. The dominoes fell in the ensuing day.

Chinese politics

Chinese politics is complex and fascinating. The constant struggle between different factions, the transitions between different leaderships, the opening of Chinese economy to the World, the return of Hong Kong in 1997, and the transition from communist to arguably the most capitalistic society (politically communist but economically not) in the world. These are all archived in detail and my attempt won’t be as extensive and specific. What it will be however, is an oversimplification of the events that occurred that culminated in the implosion of Ant Group’s mega IPO.

Few decades ago, in the era of Deng Xiao Ping (China’s revolutionary leader that proposed the infamous ‘One country, Two system’ constitutional principle in Hong Kong, enabling independent economic and administrative systems to that of mainland China), businessman were not permitted to partake in political activities. It is not hard to imagine the rationale behind it since communism advocated ‘a society where socioeconomic order was structured upon common ownership of the means of production and the absence of social classes, money and state’. The capitalistic nature of businesses was discouraged and frowned upon.

The gradual shift

With the Open Door Policy in 1979, the country benefitted from trade agreements and grew economically at staggering pace. The change demanded a new guiding socio political theory. The theory known as Three Represents was proposed and ratified in the Party beliefs, amounting to Deng Xiao Ping or Mao Ze Dong thought (it’s like the constitution).

In Three Represents,

The three constitution parts stresses that ‘Party must always represent the requirements for developing China’s advanced productive forces, the orientation of China’s advanced culture, and the fundamental interests of the overwhelming majority of the Chinese people.’ This affirms the changes to be brought about to economy, cultural development and political consensus to the society.

Most notably in the ideology was the central element of opening up the Party to ‘overwhelming majority of Chinese people’ on the ground that they ‘engage in economic production’, in the goal of ‘advancing Chinese’s culture’ – effectively lifting any restrictions on businessman, merchants in joining the Party.

This was revolutionary because of the fundamental ideological difference to that of Marxism. The move essentially opened the possibility of democracy in China in the future, as well as further opening up the economy to a capitalistic market.

Fast forward to today, it is not uncommon to see business leaders participating in legislative meetings, providing their expertise on topics to the committee (similar to lobbying).

Despite this, the shift in attitude is palpable with the change in leadership to President Xi in 2012. He advocated a widespread anti-corruption campaign, perceived as a crackdown on super wealthy billionaires, suggested as an effort to consolidate and safeguard his power by driving businessman out of the party. Perhaps exercising extreme caution to prevent similar political saga in Russian politics – oligarchs drove President Boris Yeltsin out of power in 1999.

The gatekeepers

On the contrary, the revolt could be explained as a pushback on Jack Ma from the ‘gatekeepers’ because of his uncharacteristic behaviours in the lens of Chinese culture. Remember the words of Confucius - ‘the superior man is who does not boast himself’.

Jack Ma may just be too big of a personality for the liking of the society, especially to the top politburo. It is the anti-thesis of what the culture advocates for. The outspoken, brashness, the larger than life personality definitely irked certain group, resulting in the move.

I made some quick searches and found consistent pattern in the political speeches made. The party speeches have always been about the country, the greater struggle for the bigger picture. It certainly contrasted against that of the West – highlighting what the individual has done for the post. It could very well be an ideological difference than a cultural one. Nonetheless, the inconsistency in President Xi’s extension as Party leader stood out at me.

What is true is that China expects companies to toe the party line (whatever this means). Sending a message which aligns with the manifesto – everything belongs to the country. It hints indirectly at a power struggle, showing that the party leader still has the power to shut anything down at a moment notice – the night before supposed IPO.

TL;DR

All in all, Ant Group failed IPO could very well just be a straightforward, calculated, no nonsense, House of Cards style political manouvre.

Or it could be that after centuries of cultural evolution, deep subconscious wiring, some overly detailed narrative play later; in the end, collectively decided by the top politburo that Jack Ma ‘betrayed’ those core values - those morals their ancestors so dearly preserved, ultimately settled on pulling the plug on his business venture, to serve as a cautionary tale for future generations - to not try to redefine the culture too abruptly.

As history books always do say, only time will tell.

All feedbacks are welcomed.